TMI Blog2007 (8) TMI 382X X X X Extracts X X X X X X X X Extracts X X X X ..... iled to appreciate before passing the impugned order that there was no error in the order of assessment and, further, the show-cause notice given by him was at variance with his order for which the action was initiated, and that before making such an order, no notice was given and as such the impugned order is unsustainable both on facts and in law. 4. That in the circumstances of the case, the learned CIT had erred in disregarding the replies and the details filed by the appellant in response to the aforesaid show-cause notice issued by the learned CIT, particularly in view of the fact that the assessment had been completed by the learned Jt. CIT after due enquiry and after examining all details and records produced by the appellant, and that the impugned notice was not based on any fresh material or evidence which had been found to be concealed by the appellant or misrepresented by the appellant during the assessment proceedings, and that for such reasons the assessment framed by the learned Jt. CIT could not be held to be erroneous in nature and prejudicial to the interest of Revenue, and also that for such reasons the impugned order has not been correctly passed, and also tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red, while holding that the income derived from letting the property was not the income assessable under the head income from property in holding that there were certain purported violation of the terms of the lease with the lessor of the land and the lessee of the land and in any case and without prejudice the same alone could not be regarded as a sufficient basis for concluding that the income derived by the assessee from the superstructure constructed on the leased land ceases to be property, the income whereof was only assessable under the head income from property. 11. That in the alternative and without prejudice the adverse findings recorded by the learned CIT, while purportedly setting aside the order, are also erroneous and as such findings recorded by the learned CIT that the income was not liable to be assessed under the head income from property is liable to excluded from the order made under s. 263 of the Act. 12. That the appellant reserves its right to advance such other grounds before or at, the hearing. Which it may consider fit and appropriate, for which it craves leave to amend, alter or otherwise modify the grounds appearing hereinbefore." 2. The CIT on ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the conditions specified in the lease deed. The agreement between the parties, further, stipulated that without the written consent of the DDA, the lessor i.e. Vaitalik would not be entitled to carry on or permit to be carried on the said land or building thereon any trade or business or use the same or permit the same to be used for any purposes other than the stipulated ones. 6. Subsequently, Vaitalik entered into a contract with the assessee company vide agreement dt. 27th July, 1994 authorising the latter to take the land on sub-lease for carrying out and completing the construction on the land as per the sanctioned plan and out of the constructed portion use area equivalent to 23,883 sq. ft. and pay Vaitalik a lease amount of Rs. 9.50 per sq. ft. per month in respect thereof. Further, by a subsequent agreement dt. 2nd March, 1996 between Vaitalik and the assessee company, it was stipulated over and above the terms already agreed upon that Vaitalik would permit the assessee company to use the premises for its own purpose or let the same out to any party and that Vaitalik would have no objection to the occupation and manner of the use of the same by any party to whom the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zed Rs. 6,03,08,180 as rent from 6 tenants during the year under consideration, apart from Rs. 50,27,576 as service charges. The rental income has been declared by the assessee company as income from house property on which deduction on account of repairs has been claimed and allowed in the assessment order dt.31st March, 2000passed by the Jt. CIT,SpecialRange,New Delhi. A deduction of Rs. 1,21,92,520 has also been claimed and allowed in the assessment on account of annual charges paid to Vaitalik. Further, the expenditure on providing service and maintenance facilities to tenants is, in terms of the contract between the assessee company and Vaitalik, the liability of Vaitalik and not of the assessee company. In the given background it was considered that real ownership of house property being the fundamental requirement for chargeability of rent realized as income from house property, the determination of the income as one from house property as declared by the assessee company and consequential allowance of deductions resulting is underassessment of tax is thus erroneous insofar as it is prejudicial to the interests of the Revenue. Proceedings under s. 263 were accordingly initia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lessor. The lessor further bound the lessee to let out (at lessee's option) to any similar institution, and the use of the leased premises for any trade of business or even unstipulated purposes is prohibited. What has finally emerged is a construction that has been regulated by a contract dt.2nd March, 1996between Vaitalik and the assessee company. It has been let out to the following tenants: 1. M/s Northern Telecom Ltd. 2. M/s UOP Asia Ltd. 3. M/s TNT Express WorldwideIndia(P) Ltd. 4. M/s Whirlpool India Holdings Ltd. 5. M/s IKEA TradingHong KongLtd. 6. M/s L'AIR Liquede S.A. These tenants are admittedly using the rented premises for purposes other than the ones allowed by the DDA. That apart, in terms of the agreement dt.2nd March, 1996, Vaitalik has leased 23,883 sq. ft. of constructed area @ 9.50 per sq. ft. per month and the tenure of the agreement has been specified for a period of 5 years, being effective from1st Aug., 1995to31st July, 2000. The terms also provide for extension at the instance of Vaitalik. The agreement between the assessee company and Vaitalik is thus contractual, having a fixed tenure and the rights conferred during the tenure on the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax under the head "Income from house property" in the hands of the assessee company and accordingly no deduction would be allowed on account of repairs or the other deductions claimed. 12. After having treated the order passed by the AO as erroneous and prejudicial to the interests of Revenue, the CIT set aside the same with directions to the AO to reframe the same but after examining whether the rent realized from the six tenants constituted business income in the hands of the assessee company or "income from other sources". This according to the CIT required detailed examination having regard to the memorandum and articles of association of the assessee company. The CIT also observed in para 8 of his order that since the income was not to be computed under the head "Income from house property", the deductions claimed by the assessee pertaining to the said head would be inadmissible but the AO would allow the assessee an opportunity to adduce requisite claim in respect of any deductions it claimed and decide the admissibility or otherwise thereof in accordance with law. 13. Before us, the appeal was argued on a number of occasions by both sides and they not only took us thro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, etc. and recover rent or monies therefrom, for its sole and exclusive use. The lease of areas by VAK to ARCPL shall be for a period of 5 (five) years and 6 (six) months and renewable for one term at the option of ARCPL. Any further, renewals or extensions of the lease shall be subject to mutual consent of the parties hereto. In case VAK terminates or refuses extension of the lease of premises to ARCPL, it shall reimburse to ARCPL the cost incurred.' It is submitted that the learned CIT has ignored that there is absolutely no dispute between the assessee and M/s Vaitalik that the assessee is the owner of the superstructure so constructed and has been agreed to be legally owned by the assessee. Further, it will be seen from the preamble to the agreement, dt.27th July, 1994that it is admitted position that the aforesaid arrangement had been entered into by Vaitalik as it was stated as under: 'And whereas, VAK had obtained few extensions of sanctioned plans from the appropriate authority for completing the construction and it is necessary that in compliance of the conditions of the lease deed and extensions of sanctioned plans, the construction is now completed at the earliest. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.50 per sq. ft. per month.' It is thus evident that the assessee is the owner of the area constructed on the land aggregating to 23,883 sq. ft. and as has been held by the Hon'ble Supreme Court in the case of CIT vs. Podar Cement (P) Ltd. Ors. (1997) 141 CTR (SC) 67 : (1997) 226 ITR 625 (SC) and in the case of Mysore Minerals Ltd. vs. CIT (1999) 156 CTR (SC) 1 : (1999) 239 ITR 775 (SC), the assessee is to be regarded as an owner of the building. Smt. Kala Rani vs. CIT (1981) 23 CTR (P H) 17 : (1981) 130 ITR 321-325 (P H) It cannot be accepted that before a person can be assessed under s. 22, he must be the owner by virtue of a sale deed in his favour. As a matter of fact, what is being taxed under s. 22 is the income from house property or the annual value from the house property of which the assessee is the owner. The focus of the section is on the receipt of income from house property. If in a given case, it is found as a fact that an assessee is in occupation of a building as an owner for all interest and purposes, except the sale deed in his favour even then he is liable for income-tax under s. 22. See also CIT vs. Batala Trading Co. (P) Ltd. (1989) 80 CTR (P H) 80 : (198 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been handed over by M/s Vaitalik to ARCPL which was merely a vacant plot of land on which, a boundary wall had merely been raised by Vaitalik. 3.1 Clause 2 of the aforesaid agreement stated that ARCPL, would complete construction over the property with its own funds, and that in consideration M/s Vaitalik agreed that the area of 23,883 sq. ft. out of the total constructed area, shall be owned and possessed by M/s ARCPL and that M/s ARCPL shall pay a lease amount of Rs. 9.50 per sq. ft. per month. (This was the lease rent of the land however the calculation of lease rent was based on the area constructed which was to be owned by the lessee i.e. the assessee company). 3.2 It may be stated here that, from the aforesaid stipulation, it cannot be understood as if what was leased out to the assessee was, in fact a constructed area because no construction had been raised by the aforesaid date, (which was yet to be raised by the assessee from its own funds) and a sum of Rs. 9.50 sq. ft. per month was the amount of lease which was payable by the assessee in consideration as a rent of the land on which, the superstructure had to be completed by the assessee. This will be evident from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of M/s Vaitalik and such an assessment made on M/s Vaitalik has attained finality. It was thus on the basis of the judgment of the Hon'ble Supreme Court in the case of Rampyari Devi Sarogi vs. CIT (1968) 67 ITR 84 (SC) contended that the instant assessment was not erroneous. It is submitted there has to be owner of a building. In such circumstances it was submitted that otherwise too the appellant could alone be regarded as the owner. 5. It is further, submitted that after the termination of the agreement on31st March, 1999, it is evident that the assessee did not remain the owner of the superstructure, nor it has so claimed. It is, therefore, contended that the assessee was the owner of the superstructure of 23,883 sq. ft. of land which had been taken on lease by M/s Vaitalik and on which, the assessee had constructed 35,773 sq. ft. of superstructure. It is not a case of the assessee that the assessee was the owner of 35,773 sq. ft. as under the aforesaid agreement as it was clearly understood between the parties that the assessee is the owner of 23,883 sq. ft. only and no more. As directed by the Hon'ble Bench a copy of the cancellation of lease agreement is placed in the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Transfer of Property Act is concerned. It is respectfully submitted that though, such an assumption is not a correct preposition in law yet, even assuming it be so then too, having regard to the provisions of the IT Act, there can be no dispute that the instant income earned by the assessee by letting out the superstructure owned by it to different tenants who are the tenants of the assessee and to whom the assessee has provided the premises as its tenants is arising from the superstructure built by it on the land taken by it and as such, under the IT Act, as has now been held by the Hon'ble Supreme Court in the case of Poddar Cement's, the assessee has to be regarded as an owner of the said superstructure, the income of which is taxable under the head 'Income from property'." 14. The learned counsel in view of the aforesaid written synopsis/submissions placed reliance on two judgments of the Hon'ble Supreme Court, the first being Charandas Haridas Anr. vs. CIT Anr. (1960) 39 ITR 202 (SC) at p. 208 and the second being Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1 : (2000) 243 ITR 83 (SC), the latter for the proposition that in a given case, where two views were p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee was not the owner of either the land or the superstructure and the income arising from the said superstructure could not be taxed under the head "Income from house property". (iv) The question of conflicting views being available did not arise since in the present case, the assessee was not the owner of the property and there could be no second view possible. Further, the view of the AO was unsustainable in law. (v) The agreement between the parties was not registered and s. 91 of the Evidence Act was applicable. (vi) As per the relevant provisions of s. 25 of the Contract Act as also those of the Registration Act, the agreement was required to be registered. (vii) The title of the property was always with Vaitalik and there was no intention to part with it and therefore the decisions in the case of Poddar Cements and Mysore Minerals did not apply. The only intention was to enjoy the property for a period of five years and odd and to return back the same to Vaitalik after the expiry of the said period. (viii) Even as per the agreement between the parties there were numerous restrictions as to how the property was to be enjoyed by the assessee and to mention one o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel also took exception to the filing of the calculation by the learned Departmental Representative highlighting the revenue effect and, further, submitted that the subsequent deed of cancellation was not relevant to the point at issue. As regards the payment of Rs. 9.50 per sq. ft. to Vaitalik and which according to the learned counsel was the lease amount for the property, the stand taken by the learned counsel was that the said amount became payable only on completion of the construction and not earlier and, further, the parties had to act as per the agreement and not otherwise. The further, submission was to the effect that out of the total area constructed i.e. 35,000 sq. ft. and odd, the area of 12,000 sq. ft. given to M/s Vaitalik was to be treated as "consideration". 20. Coming to the various decisions relied upon by the learned Departmental Representative, the submission of the learned counsel was that these were distinguishable on facts and not applicable. A specific reference was made to the judgment of the Hon'ble Supreme Court in the case of 1972 CTR (SC) 8 : (1972) 83 ITR 700 (SC). According to the learned counsel, every judgment had to be read in the light of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble assets such as furniture and fittings, sanitary, and electrical fittings. 24. In proceeding further from the aforesaid accepted facts, we would at the outset like to emphasise that an agreement/contract between parties must be read as a whole to determine the intentions of the parties and one must not venture to pick up separate clauses/lines/observations to form an opinion. These propositions apply in full force to the "contract for construction services" entered into between the parties and copy thereof being placed at p. 69 onwards of the paper book. The following facts emerge: (i) The assessee has taken the land on lease for carrying out the construction. (ii) The entire cost of construction for the total area of 35,773 sq. ft. has been met by the assessee and it is agreed between the parties that area to the extent of 23,833 sq. ft. will be "owned and possessed" by the assessee company. (iii) The assessee is authorized to use the premises for its own purposes or let out any part or the whole "as an owner". (iv) That the lease rent is to be calculated at the rate of Rs. 9.50 per sq. ft. per month of the area stated to be owned and possessed by the assessee company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue in favour of the assessee and against the Revenue by opining that the assessee could not be said to be the owner of the building and the income from the property was not assessable in its hands. The Court recognized the factual position inIndiawhere land may belong to one person and the building to the another unlike the position prevailing inEnglandand observed as follows: "It appears to me that, in the absence of anything else, the person at whose cost or on whose behalf a building is constructed on land belonging to another would initially be the owner thereof and that person need not necessarily be the builder who constructs that building, even though he may happen to be the licences of the land on which he builds." In the case before us the land admittedly belongs to Vaitalik and the entire superstructure has been constructed by the assessee at its own cost. CIT vs. Podar Cement (P) Ltd. Ors.- The facts of the case were that the assessee owned four flats in a building in Bombay and out of these two were directly purchased from the builder and the other two were purchased by its sister concern and subsequently, by the assessee. The possession of the flats was take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecuted on 11th April, 1969 and it was the stand of the assessee that it had become the owner of the property only during the accounting year 1969-70 relevant to asst. yr. 1970-71 and, therefore, income from self-occupied property was not shown in the returns of income for asst. yrs. 1968-69 and 1969-70. On the matter travelling to the Tribunal, the view taken was that the income from self-occupied property had been rightly included as the assessee's income from house property for asst. yrs. 1968-69 and 1969-70. At the instance of the assessee the matter travelled to the Punjab Haryana High Court and their Lordships took the view that the assessee kept the house after the execution of the agreement to sell dt.17th March, 1964in her favour and she was in a position to earn income from the property and, therefore, income from self-occupied property was includable in the assessee's income. Their Lordships relied on the judgment of the Hon'ble Supreme Court in the case of R.B. Jodha Mal Kuthiala extracting in the order the following observations of their Lordships as also its own reasoning thereafter: "But the real question is, can that right be considered as ownership within the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver and above it is paying a lease rental for the land on which the superstructure stands no doubt with reference to the area which has come to it as a result of the agreement. We may also mention at this stage that one of the arguments advanced on behalf of the Revenue before us was that the agreement between the parties is not a registered document and, therefore, no rights of ownership come to the assessee. The response of the learned counsel for the assessee was that since the document in question had been acted upon by both the parties and there was no dispute on that score the question of registration may not be relevant. We are in agreement with the stand taken on behalf of the assessee vis-a-vis relevant case law to which we have adverted immediately preceding the present observations. In other words the absence of a registered document on the facts and circumstances of the case does not work as a hurdle against the assessee. CIT vs. Estate of Omprakash Jhunjhunwala: The facts of this case are much nearer and in fact quite akin to the facts of the assessee before us. The assessee before the Hon'ble Calcutta High Court was the owner of the superstructure though land over wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bject to mutual consent of both the parties. In other words, the volition is not only with Vaitalik but with the assessee as well and the further, condition is that in case Vaitalik terminates or refuses the extension then the reimbursement is to be made to the assessee of the cost incurred. Much has been made by the Department of the fact that the agreement between the parties is only one for the construction of the premises and the subsequent lease of a part of the constructed area to the assessee but as already stated earlier and now reiterated in case the agreement is read as a whole along with the intention of the both the parties then it leaves us in no doubt that the ultimate interpretation of the agreement would lead to no conclusion other than the one that the assessee was the owner/deemed owner of constructed area to the extent of 23,000 sq. ft. and odd. The legal position as highlighted by the various decisions to which we have referred in the earlier part of the present order means the acceptance of the proposition that land can belong to one person and the superstructure can belong to another and the period for which the superstructure can belong to the another can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the present case the AO has made necessary enquiries before coming to the conclusion that he did. 30. In the final analysis, we on the facts and circumstances of the case as highlighted before us as also with reference to the case law cited and the decisions which we have relied upon do opine that the action of the CIT under s. 263 was not justified and his order is therefore, quashed. No other arguments were advanced before us by either side vis-a-vis the various deductions allowed by the AO after coming to the conclusion that the income from letting out the premises was taxable under the head "House property". 31. In the result, the appeal is allowed. Y.K. KAPUR, J.M.: December, 2003 I have gone through the order of my learned Brother, considered each and every aspect to the order and given my anxious thought to the same. After going through the order sent to me and after going through the reasoning for arriving at the conclusion based on the strength of case law relied upon and referred to in the order of my learned Brother. I am unable to persuade myself to agree to either with the reasoning or to the conclusion arrived at and therefore have decided to write my own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etail records that the assessee has agreed to take lease on the land for carrying out and completion of construction over the property on the terms and conditions mentioned that the lease amount shall be calculated with reference to the area, which will be in possession of the assessee. The lease amount was also fixed under the said agreement @ Rs. 9.50 per sq. ft. and under the said agreement it is agreed to between the parties that the payment of rent shall begin from the date of obtaining the C and D Forms in respect of the construction, which are given by the municipality on completion of the construction. In the said agreement also, there is a mention of period of lease which is to be 5 years and six months renewable at one time at the option of the assessee and any subsequent renewal/extension has to be with the mutual consent of parties. The agreement also talks of the fact that in case Vaitalik terminates or refuses the extension of the premises to the assessee, it shall reimburse the cost incurred. Not only this, for the performance of the agreement dt.27th July, 1994it is on the record that the assessee has paid to Vaitalik a sum of Rs. 5 lakhs as security to the Vaitalik ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cordance with the agreement of27th July, 1994and after the lease agreement dt. 2nd March, 1996 effective from 1st Aug., 1995, was entered into between the parties i.e., the assessee and Vaitalik, the assessee entered into further lease agreements with six parties with respect to certain areas in the building. Though the Vaitalik has leased the area to the assessee at Rs. 9.50 per sq. ft. but the assessee in turn, I must say had rented out the said area to various parties at a rent, which was to the tune of approximately 8-10 times more than the rent which the assessee was paying to Vaitalik. Through the rent received by the assessee, from various tenants, the assessee generated certain income, which income was offered for taxation. Undoubtedly, the income was to be assessed under one of the heads mentioned in s. 14 of IT Act. 6. In the return of income filed, the assessee disclosed income so generated by it through the process of renting as income from house property and after making certain calculations, additions, subtractions offered the amount so generated for taxation as income from house property which was so assessed by the AO and the AO framed the assessment taxing the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wner and not as a tenant. According to the assessee the right exercised by him while renting out the property is the right, which an owner of a building can exercise, in his own right, and therefore, since he has exercised the right as on owner and in his own right the income derived by him has to be taken as income from house property. Apart from the objections referred to above raised by the assessee before the CIT(A) it was also contended that the powers under s. 263 cannot be invoked to correct an assessment, which has been framed on the basis of an opinion of an AO when two opinions are possible. Amongst others, contention raised by assessee before CIT, it was also the contention of the assessee, that too in the alternative that when two opinions are possible one of which is in favour of the assessee, it is that opinion which should be adopted and when adopted cannot be subjected to proceedings under s. 263 of the Act. The sum and substance of the arguments of the assessee before the CIT(A), I may say were five folds, which were in the following manner: (i) That the assessee had taken the lease of the land and he was not the lessee of the building; (ii) The assessee had co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emises let out to the 6 tenants. The first is that it is the owner of the constructed portion to the extent of the stipulated area of 23,883 sq. ft. as it was competent to use the same in the manner it considered appropriate and the same would be binding on Vaitalik. Its ownership and possession was therefore there to constitute the rent realized therefrom as income from house property. The second plea is that the assessee company is the deemed owner of the said premises in terms of s. 27(iiib) of the IT Act and on that score also the income has rightly been assessed as one from house property. Support in this regard has been drawn from the decision of the Hon'ble Supreme Court in the case of CIT vs. Podar Cement (P) Ltd. Etc Admittedly, the plot of land on which the construction stands is leased to Vaitalik by the DDA under perpetual lease. Vaitalik has entered into a contract for construction services vide agreement dt.27th July, 1994. The construction is said to have been completed on31st July, 1995. In terms of the lease agreement with the DDA, the lessee (i.e., Vaitalik) could only construct an auditorium for Indian classical dance, instrumental music, art gallery, etc. Any ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by the assessee on the grounds, which are in line with the arguments raised, and part of which has been referred to above. There are as many as 12 grounds taken by the assessee in the appeal a perusal of which would reveal that the sum and substance of all the grounds of challenge made by the assessee before us is to the invocation of the provisions of s. 263 in the facts and circumstances of the present case which according to the assessee in view of various pronouncements relied upon by it was not proper. According to the assessee, the CIT(A) has erred in directing the AO to treat the income realized by the assessee from letting of the premises as business income or income from other sources and not income from house property. 13. I would have reproduced the grounds of appeal in my present order, but as the same have been reproduced in his order by my learned Brother. I am not reproducing them, but definitely shall be making an attempt to deal with the issues raised in those grounds. 14. At the time of hearing of the appeal both the parties, I must in all fairness say. argued the matter with great zeal, passion and sincerity. That took us through each and every nook of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditions appearing therein." 15. After having drawn our attention to the aforesaid the learned counsel for the assessee drew our attention to internal p. 3 of the said agreement and p. 71 of the paper book wherein under cl. 1, it has been so recorded: "that ARCPL shall take the land on lease for carrying out and completion of construction over the property aggregating 35,773 sq. ft. at its own cost and with funds to be arranged out of its own resources." 16. Advancing his arguments further, the learned counsel for the assessee also referred to the following lines at the bottom of cl. 1 at p. 71 of the paper book which are in the following terms: "lease amount shall be calculated with reference to the area which may be in possession of ARCPL. That the possession of the property has been handed over by VAK to ARCPL for carrying out the above referred construction." 17. Reference by the counsel for assessee was also made to construction agreement of 27th July, 1994 wherein at internal p. 4, it has been agreed to between the parties that: "That in consideration of ARCPL building construction over the property with own funds, VAK agrees that the area of 23,887 sq. ft. on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (I) Ltd. vs. ITO (1992) 42 ITD 581 (Cal); (14) ITO vs. Chokhawala Enterprises (1993) 45 ITD 256 (Ahd); (15) CIT vs. Estate of Omprakash Jhunjhunwala. 20. To the arguments raised by the learned counsel for the assessee, the learned Departmental Representative submitted that the assessee was never the owner of the structure and, therefore, not entitled to claim that the income realized by him from various tenants to whom premises were rented out is to be assessed as income from house property. The learned Departmental Representative contended that at no point of time was the assessee given the lease of the land as claimed by him. According to the learned Departmental Representative, the lease was only for the structure and with respect to the portion, which was under construction agreement and the premises was to be enjoyed by the assessee in accordance with lease deed. The learned Departmental Representative contended that the agreement dt.27th July, 1994is nothing, but a contract for construction service. According to the learned Departmental Representative all that what was intended under the said agreement was that the assessee would be granted the right to sublet the area ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Vaitalik, the lessee had subletted the property at a rate ranging from 8-10 times more than what was being paid by lessee to Vaitalik. The learned Departmental Representative contended that a perusal of cl. 2 of the agreement of 27th July, 1994 makes the intention of the parties amply clear that at no point of time Vaitalik wanted to confer ownership rights in the structure/building as suggested by the assessee and that is why the language used in the agreement is that the payment of rent shall begin from the date of obtaining Forms C and D in respect of construction to be completed. The learned Departmental Representative contended that when this clause is read in conjunction with the preamble of the construction agreement then there would be no grey area which would even remotely suggest that it was lease of land and not of the structure. According to the learned Departmental Representative Forms C and D mentioned in the clause are indicative that a building can be said to be complete when these certificates are granted and that too by municipality certifying the building to be complete. The learned Departmental Representative contended that since lease was to start only on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is the total of the area of the basement ground floor, first floor, second floor and third floor. Not only this, the learned Departmental Representative contended that what is being leased out to the assessee is an area of 23,883 sq. ft. out of the total constructed area which has been mentioned in p. 71 in cl. 1. Advancing his arguments further learned Departmental Representative said there are two words used in the construction agreement on p. 4; one is the word 'premises' and the other is the word 'area'. The learned Departmental Representative contended the word 'premises' is always used in the context of a structure and not in the context of a vacant land. To demonstrate it further, that income was derived by the assessee was from subletting, by making referred again to the construction agreement the learned Departmental Representative contended that under cl. 3, the assessee had deposited a security of Rs. 5 lakhs which security was to be refunded back by the Vaitalik on obtaining the possession of the built up area. The learned Departmental Representative contended that the word used in cl. 3 of the construction agreement which are in the terms "security deposit shall be ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vidence or arguments can be raised to modify or vary the terms of lease. According to the learned Departmental Representative, s. 91 of the Evidence Act is a complete answer to all the submissions made by the learned Authorised Representative who through his arguments wants to vary the terms of lease deed which argument would be hit by s. 91 of the Evidence Act. Reliance was also placed by learned Departmental Representative to the provisions of s. 92 of the Evidence Act. Sec. 54 of the Transfer of Property Act was also referred to by learned Departmental Representative to show how does a sale takes place under the Transfer of Property Act. Advancing his arguments further, the learned Departmental Representative contended that there is a method for transfer of property. Making concession that there can be one person who is the owner of the land and the other is the owner of the structure, learned Departmental Representative contended that for someone to be the owner of the structure there has to be material on the record to indicate that a particular structure has been transferred or in occupation of an individual in his own right. Referring to the judgment of the apex Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure so built by him. (c) and if answer to question (b) above is in the affirmative, then whether the income so realized by the assessee is to be taxed as the income from house property. 25. To answer these questions one has no option, but to not only read and interpret the agreement of 27th July, 1994 as well as the lease agreement dt.2nd March, 1996effective from1st Aug., 1995placed on the record and which is a registered document, registered as per the requirements of law. For interpreting a document. I feel one must look at the document as a whole starting from the preamble of the document because it is the preamble of the document, which at the threshold gives the first hand information of the true purposes for which a document is executed. When the agreement dt. 27th July, 1994 which called the contract for construction services is examined in this background one gets indication of the fact that Vaitalik to whom the fund was allotted the DDA could not carry out the constriction for paucity of funds were in the lookout for someone who could carry out the construction with its own resources and complete the same within a period mentioned in the agreement. So the basic idea w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and structure are two things and both are capable of separation whereas it is difficult to separate the basement, ground Door, first floor, second floor, third floor structure from, each other from the land in between and in fact it would be too preposterous to held that there is any land between basement and ground, ground and first floor, first and second and second and third floor. 29. The net result of the discussion above is that, I have no hesitation in observing that the learned counsel for the assessee was wrongly interpreted the construction agreement as an agreement granting lease of land by picking some lines from here and there in the agreement to its advantage contrary to the settled legal position that an agreement or a document has to be read as a whole and then only the intentions shall become clear with regard to what the parties intended to. 30. At this stage I may refer to the legal position with regard to reading of deeds and documents. The apex Court AIR 1977 SC 105 and Mysore High Court in AIR 1972 Mys. 263 have held that in constructing a document it is always necessary to find the intention of the parties executing it and the intention has to be gather ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record and placed at pp. 118-128 of the paper book. If it was only the lease of the land, then what was the necessity of the parties to the construction agreement to say that the payment of rent shall begin on the completion of construction and that too on obtaining of the C and D Forms or for the party to say that the security deposit will be refunded to while handing over of the built-up area or what was the necessity of using the expression 'premises' or area in the said construction agreement. When I examine this construction agreement very minutely and examine it from all possible angles, feel all that can be said about this agreement is that apart from the fact that the agreement was a construction agreement it was also an agreement by the Vaitalik with the assessee undertaking to lease out certain portion in the constructed area. This clause was obviously inserted to give a security to the assessee who had made huge investments in the property to enjoy the fruits in the form of rent and was agreed to keeping in mind that if tomorrow Vaitalik wants to get out of the said agreement or wants to pay compensation or something like this, the said agreement can be enforced through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was leased out to him and it is beyond comprehension that the assessee was only the lessee of the land. 35. I have another reason to reject the argument of the counsel for the assessee and the reason is that when I look at the lease deed on p. 4 which is not only signed by both the parties, but also registered under the Registration Act as required by law, it does not talk of land. That apart, in cl. 1 of the agreement at p. 119 of the paper book, it talks of areas on all the floors. Not only this, it talks of period, which commences from1st Aug., 1995to31st July, 2000. That apart, the expression used in the lease deed for the area rented out is "demised premises" which obviously is indicative of area leased out under the agreement and what is rented under the agreement is reflected in the agreement itself and clarified in cl. 1, which means area situated on all floors i.e., basement, ground, first, second and third floors measuring 23,883 sq. ft. Even on this premise it is difficult for me to agree with the learned counsel for the assessee that what was rented out was land and structure belonged to the assessee. 36. I have another reason to reject the contention of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er intended to give lease of land as claimed by assessee or that the parties ever agreed that assessee shall be the owner of the building as claimed by him. 40. I have another reason to reject the argument of the assessee that he was the owner of the building in the light of the agreement of lease placed on the record. 41. In accordance with the s. 91 of the Indian Evidence Act which mandates that when the terms of a contract, or of a grant or of any other disposition of property have been reduced to the form of a document, no evidence shall be given in proof of the terms of such contract, grant or dispositions of the property except the document itself. Under s. 92 it is mandated that when the law requires the document to be reduced to the form of a document and they have been proved according to the requirement of s. 91 of the Evidence Act, no evidence or any oral agreement or statement shall be admitted as between the parties for the purposes of contracting, varying, adding to or subtracting from its terms. Drawing strength from these two sections of the Evidence Act, we have here a lease agreement. The lease agreement talks of the area, which is agreed to be rented out to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property, as against one another, respectively, possess the rights and are subject to the liabilities mentioned in the rules next following, or such of them as are applicable to the property leased :...... (h) The lessee may even after the determination of the lease remove, at any time whilst he is in possession of the property leased but not afterwards all things which he has attached to the earth; provided he leaves the property in the state in which he received it." 45. A perusal of s. 108(h) of the Transfer of Property Act makes it abundantly clear the concept of land belonging to someone and the structure belonging to someone else is an acceptable position under the Indian legal jurisprudence. There is absolutely no quarrel on this proposition, nor can there be any. This section was incorporated to give lease of land of someone who can enjoy the land can build up structure but on expiry of the same shall have to restore the land to its original position unless there is a contract to the contrary, which is not in this case and rightly so, because the structure never belonged to assessee but the area of dispute with which I find myself to be unable to agree with the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee shall peacefully enjoy the demised premises during the said tenure without any interruption by the 'Lessor'. 9. The 'Lessee' will not make any additions or alternations without the written consent of the 'Lessor' provided, however, that the 'Lessor' may erect temporary partitions for making cabins or erect false coiling etc, at their own cost. 'Lessor' would restore the premises back to its original conditions at the time of handing over the possession back of the 'Lessor', fair wear and tear, however, excepted. 10. The 'Lessee' and the 'Lessor' agree that: (a) The 'Lessee' will not make any change in the look or design and position of the door and glazings facing the front or the back side or any side of the elevation of the space agreed to be leased without consulting the 'Lessor'. (b) Before fixing or exhibiting or altering any writings, name plates or sign boards on the entrance of the commercial space to be occupied by the 'Lessee' the 'Lessee' shall be required to consult the 'Lessor' in this regard, in order to maintain uniformity and good appearance. (c) That the 'Lessee' shall not be entitled to fix any grills on the window from the outer side of the flats b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee" would be liable to reimburse such additional premiums or any losses which the "Lessor" may have to bear on account of that reason and would also immediately stop that misuse. 15. The lease is being executed on regular stamp paper. The cost of stamp papers will be home by the "lessee". 16. The "Lessee" shall have no right of use of any common areas other than what are required to be used for ingress or egress from or to the spaces leased to the "Lessee" and which have been specifically allotted for "Lessee" use. However, the "Lessor" will allot parking spaces inside the plot to the "Lessee". 17. The terrace at the top of the block/building shall always remain the property of the "Lessor" who can use the same in any manner as desired including the rights of the "Lessor" to use the external face of the building and or the terrace at the top of demised space/block building for publicity, hoarding neon signs, etc. etc. without obstructing any business interest, of the lessee. 18. That without effecting the area of the demised premises and the right of the "Lessee" on the demised premises, the "lessor" shall always have the right to add, demolish, construct further stories of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he wish of the another for using a property or making any additions or for making change in the look or design. Not only could the assessee touch the building is further apparent from the reading of cl. 10(a) which restricts the assessee not to touch the design or look or position of doors or glazing. Clause 10(b) further, squeezes the rights of the assessee in building with respect to which he claims to be the owner and restricts him from putting name plate or signboards without consultations of the lessor meaning thereby that if the lessor objects to the same, the assessee may even find putting of a name plate difficult. There is a restriction on fixation of grills on the windows as per cl. 10(c). As per cl. 11 the assessee who claims to be the owner cannot use the premises for manufacturing meaning thereby that there is a restriction on the use of the premises by someone else on the so-called owner i.e., the assessee. The question that would arise is that if the assessee was the owner why should he agree to such restriction and the obvious answer one would get is that at no point of time the building was ever intended to be treated as the one belonging to the assessee by the par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oresaid clauses of the lease deed which have been discussed above leave no room to doubt that at no point of time the ownership of the structure as claimed by the assessee was intended to be vested in it. The status of the assessee in the building was that of a tenant and not of owner as is evident from the various clauses of the lease deed and in view of the fact that the assessee has itself relied upon the lease deed put an end to all the arguments of the assessee that he was the owner of building and the assessee was entitled to claim ownership in its own right and I am afraid that I myself find unable to agree with the submissions of the assessee that he is an owner of building and that too in its own right. 49. The assessee during the course of hearing in support of his proposition has relied upon the judgment of the apex Court R.B. Jodha Mal Kuthiala vs. CIT where in the issue was pertaining to an assessee whose property vested in Commissioner of Evacuee Property in Pakistan is said to be the owner of the property for the purpose of s. 9 of the IT Act, 1922 and the Supreme Court while answering this question held that the owner must be the one who can exercise right of owne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to demonstrate that there is an accepted concept inIndiaabout the land belonging to someone and the structure belonging to other. When the wording of s. 108(h) of the Transfer of Property Act are clear and talks of lease of land on which assessee can build up structure, there cannot be any dispute on this proposition. The help of judgments relied upon by the assessee can be taken only to clear doubts on the concepts of dual ownership, but when the mandate of law/statute is clear, and I agree with the proposition that land and structure can belong to two individuals. I therefore do not propose to refer to the judgments relied upon by the assessee on this issue, at this stage but must say that I have gone through the judgments relied upon and some of them have been discussed in the later part of my order. 52. The question that next arises is as to who is the owner referred to in s. 22? It is not always necessary that owner must be the person who can effectively enjoy the property though he may not be owner in whose favour document of title vests and that is what the view of the apex Court in Podar Cement's case is. When we apply this test to the facts of the present case I find a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts: (1) Malabar Industrial Co. Ltd. vs. CIT; (2) CIT vs. Jagadhri Electric Supply Industrial Co. (1981) 25 CTR (P H) 94 : (1983) 140 ITR 490 (P H); (3) CIT vs. L.F. D'Silva (1992) 101 CTR (Kar) 152 : (1991) 192 ITR 547 (Kar); (4) CIT vs. Trustees, Anupam Charitable Trust (1987) 65 CTR (Raj) 30 : (1987) 167 ITR 129 (Raj); (5) CIT vs. R.K. Metal Works (1978) 112 ITR 445 (P H); (6) CIT vs. Kashi Nath Co. (1987) 64 CTR (All) 177 : (1988) 170 ITR 28 (All); (7) J.P. Srivastava Sons (Kanpur) Ltd. vs. CIT (1978) 111 ITR 326 (All); (8) CIT vs. Late Sunder Lal Through Bankey Behari Lal (1974) 96 ITR 310 (All); (9) Sanco Trans Ltd. vs. CIT (1997) 58 TTJ (Mad) 619 : (1997) 61 ITD 317 (Mad); (10) Jagjit Industries Ltd. vs. Asstt. CIT (1997) 60 ITD 295 (Del); (11) Andhra Valley Power Supply Co. Ltd. vs. Dy. CIT (1995) 53 TTJ (Bom) 647 : (1995) 55 ITD 24 (Bom). 56. To the arguments raised by the learned counsel for the assessee, learned Departmental Representative submitted that in accordance with the s. 263(1) all that the CIT needs to see after examining the record is that (a) Whether the order passed by the AO is erroneous insofar as it is prejudicial to the int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here was one and only one view possible that the income is not income from house property, what the CIT has done by the impugned order is that he has directed the AO to find out whether it is income from business or income from other sources and how can such an order as passed by the CIT be said to be bad. According to the learned Departmental Representative, that the contention of the learned Authorised Representative that there were two views possible are devoid of any merit and deserves outright rejection. 58. In this back the learned Departmental Representative contended that the action of the AO in treating the income of the assessee from renting out the property as income from house property is erroneous and as the order is erroneous, according to the learned Departmental Representative one limb of the requirement of s. 263 of the IT Act, stands satisfied. 59. Advancing his arguments further, the learned Departmental Representative contended that merely an order is erroneous is not enough to invoke the provisions of s. 263 but at the same time it should be prejudicial to the interest of Revenue and to prove that the learned Departmental Representative filed a chart and su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the assessee that there could possibly be two views with regards to head pertaining to the taxability of the income of the assessee. 62. Apart from the two agreements, one the construction agreement and the other lease agreement, the assessee in one of the agreements under which has rented out the property further has used the expression that assessee is willing to sub-lease the area. This agreement is dt.8th Jan., 1996wherein at p. 223 it has been so recorded: "Whereas the lessor is in possession of commercial space in the building having a super built up area of 7,300 sq. ft. situated on the 3rd floor level as shown on the attached plan which forms part of this agreement, as a lessee on the terms and conditions contained in the said lease agreement and is willing to sub-lease the said space to the lessee (hereinafter referred to as the demised premises." 63. This agreement reflects that as far as the assessee is concerned it knew its status vis-a-vis the structure. He knows he is a tenant only and not owner. By using a different nomenclature in the other lease agreement entered into the assessee with some other tenants, the situation would not improve. Its status would al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervations: "Held, (i) that since the appellant company was not the owner of the property or any part thereof, no question of making the assessment under s. 9 arose; (ii) that the definition of 'business' in s. 2(4) was of vide amplitude and it could embrace within itself dealing in real property as also the activity of taking a property on lease, setting up a market thereon and letting out shops and stalls in the market; (iii) that, on the facts, the taking of the property on lease and subletting portions thereof was part of the business and trading activity of the appellant and the income of the appellant fell under s. 10 of the Act; and (iv) that where, as in this case, the income could appropriately fall under s. 10 as being business income, no resort could be made to s. 12. The liability to tax under s. 9 of the IT Act, 1922, is of the owner of the buildings or land appurtenant thereto. In case the assessee is the owner of the buildings or land appurtenant thereto, he would be liable to pay tax under s. 9 even if the object of the assessee in purchasing the landed property was to promote and develop a market thereon. It would also make no difference if the assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s erroneous, is it prejudicial to the interest of Revenue because unless and until the two conditions of s. 263 in the order co-exist one being erroneous and another being prejudicial to the interest of Revenue, the action under s. 263 of the IT Act cannot be sustained. 67. To adjudicate whether it is prejudicial to the interest of Revenue or not, the learned Departmental Representative placed a chart depicting the escapement of income in the event of the income being held to be the income from house property and this would be loss not in one year but during all the years when the lease deed executed by assessee would be in operation. The filing of this calculation chart by the learned Departmental Representative the contents of which have been reproduced above was objected to by learned counsel for assessee, but as we are the final fact finding body under the IT Act, we took the chart on record and once it is on record I cannot afford to ignore the same despite this objection by the learned counsel for the assessee, who objected to the filing, but not to the calculations. 68. From perusal of this chart, I am convinced that a certain income has escaped taxation and this in not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TO adopted one of the courses permissible in law and it has resulted in loss of Revenue; or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the ITO is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the AO accepting the same as such will be erroneous and prejudicial to the interests of the Revenue. Rampyari Devi Saraogi vs. CIT (1968) 67 ITR 84 (SC) and Smt. Tara Devi Aggarwal vs. CIT 1973 CTR (SC) 107 : (1973) 88 ITR 323 (SC)." 70. In view of my findings aforesaid that the terms and conditions of s. 263 were satisfied. I find that the reliance by the counsel for the assessee on this judgment, which helps that Revenue and not the assessee in the facts and circumstances of the present case, is misplaced. 71. The other judgment to which attention was drawn by the assessee was the one reported in CIT vs. Jagadhri Electric Supply Industrial Co. In this case the Court was concerned with the issue as to whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order is without reasons it is invalid. As the order of CIT subject matter of appeal discloses his mind and has given reasons for arriving at the conclusion that the order is erroneous insofar as it is prejudicial to the interest of Revenue, these judgments I feel do not in any way advance the case of the assessee. 78. The other orders relied upon by the assessee in Sanco Trans Ltd. vs. CIT, Jagjit Industries Ltd vs. Asstt. CIT, Andhra Valley Power Supply CO. Ltd. vs. Dy. CIT, have also been examined and I feel they do not also advance the case of the assessee. 79. The assessee has relied upon for scope of ownership of superstructure under Indian law and for this relied upon the observations of the apex Court in Bhatia Co-operative Housing Society vs. D.C. Patel AIR 1953 SC 16 which has been gone through. I may extract the relevant portion of the judgment herein below: "By the operative part of the lease the demise is not only of the land but also of the building standing thereon. This demise is certainly an act of ownership exercised by the lessor over the land as well as the buildings. Under s. 105 of the Transfer of Property Act a lease is a transfer only of a right to enj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee was never intended to be vested in the assessee in the capacity of ownership. 81. I am not referring to any other judgment on the issue relied upon though I have gone through each of them, as I am of the view that under s. 108(h) of the Transfer of Property Act, there cannot be any quarrel on this proposition. 82. Now I propose to consider the judgments relied upon the assessee on the scope of owner under s. 22 of the IT Act, 1961. 83. The first judgment on the issue is the one reported in CIT vs. Madras Cricket Club. The facts in this case was that the assessee was allotted lease of land for a long duration on which it constructed a building with provision in lease that the lessee on the determination of the lease or its expiry thereof shall be entitled to remove the building. The lease I must say was in accordance with the provisions of s. 108(h) of the Transfer of Property Act. The assessee was sought to be taxed on the income realized from the property as income from house property which was objected to by the assessee but the opposition of the assessee was overruled on the ground that for assessing a person it is not necessary that he should be the own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 24 is misplaced. 90. The sum and substance of the above discussion is that the order of AO is not only erroneous but prejudicial to the interest of Revenue and, therefore, I have no hesitation in confirming the view taken by the CIT while passing order under s. 263 of the IT Act. 91. The sum and substance of the above discussion is that the appeal filed by the assessee fails and is hereby dismissed. REFERENCE UNDER S. 255(4) OF THE IT ACT, 1961 18th Dec., 2003 As there is a difference of opinion amongst us on certain issues arising out of the appeal, we refer the matter to the Hon'ble President of the Tribunal for nominating a Third Member to resolve the following points of difference: (1) Whether on facts and in law could the assessee be treated as the owner of the "Katwaria Sarai" property as is the view expressed by the Vice President or was it the lessee of the property as held by the JM. (2) Whether on the construction of the agreement between the assessee and Vaitalik could it be held that it was the case of lease of land to the assessee and a part of the structure on the said land was owned by the assessee (entire cost expended by the assessee) as is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g a view to the contrary sustaining the order under s. 263." 2. All the relevant facts have been discussed threadbare by both the Hon'ble Vice President and the JM who have passed separate orders in detail running to about 83 pages in all. There is no need, therefore, to recapitulate the facts in any great detail except the basic facts that are necessary to focus upon the controversy. The appeal relates to the asst. yr. 1997-98, the previous year ending on31st March, 1997. The assessee is a company. On17th Dec., 1986, the Delhi Development Authority (DDA) granted a perpetual lease of land situated in Katwaria Sarai inDelhito another company by name Vaitalik for development of the land with facilities, such as, auditorium for performing arts, art gallery, lecture room, administrative block, etc. The lease deed was registered on7th Jan., 1987. Apparently, Vaitalik could not muster the required funds and approached the assessee company for funds. A contract for construction services was entered into between Vaitalik and the assessee on27th July, 1994under which the assessee was to put up a structure comprising of 35,773 sq. ft. upon the land. Subsequently, on 2nd March, 1996 another ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... let out the property for rent and earned income, that such income cannot be assessed under the head "Income from house property" under s. 22 of the Act since the assessee was not the owner of the area of 23,883 sq. ft. and that, therefore, it was not entitled to get the allowance for repairs and collection charges and annual charges paid. After considering the detailed reply of the assessee, the CIT came to the conclusion that the assessee cannot be considered to be the owner of the above area and, therefore, the income cannot be assessed under the head "Income from house property". In doing so, he also rejected the assessee's arguments based on section 27(iiib) of the Act and the judgment of the Supreme Court in the case of CIT vs. Podar Cement (P) Ltd. (1997) 141 CTR (SC) 67 : (1997) 226 ITR 625 (SC). He however, left it to the AO to consider whether the income constituted "business income" or "income from other sources" and directed him to examine the question in detail after looking into the memorandum and articles of association, etc., and reframe the assessment after giving the assessee reasonable opportunity of being heard. He also directed the AO to examine the admissibili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... outlay of funds which Vaitalik somehow could not muster. It, therefore, approached the assessee for putting up the funds. It is in this background that an agreement was entered into on27th July, 1994which is styled as "contract for construction services". The preamble narrates that Vaitalik got the plans for the construction of the building approved and even commenced the work, but, due to paucity of funds and lack of infrastructure, the activities came to a standstill. Thereafter, Vaitalik thought it desires to negotiate a deal with a person "having necessary resources and expertise for carrying out and completing the construction over the property". It, therefore, approached the assessee for completing the construction. The assessee agreed "to take the land on lease" for carrying out the construction. According to cl. (1), the assessee was to construct 35,773 sq. ft. at its own cost and the lease amount "shall be calculated with reference to the area which will be in possession of ARCPL" (the assessee). Clause (2) stated that "in consideration of ARCPL completing construction over the property with own funds", Vaitalik would agree that an area of 23,883 sq. ft. on the basement t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected from1st Aug., 1995to31st July, 2000(5 years). Clause (3) acknowledged the receipt of the security deposit by Vaitalik. Clause (4) described the covenants of the lesser. Clause (5) described the covenants of the lessee i.e., the assessee. It provided that the assessee shall hand over vacant possession of the demised premises on the expiry of the lease period, that it should be restored in the same condition in which it was taken, that any damage caused by the lessee to the premises has to be repaired at the cost of the assessee etc. Clause (6) clarified that the rent of Rs. 9.50 per sq. ft. per month was inclusive of running and maintenance expenses of amenities, such as, generators, common lighting, lifts, security, housekeeping, car parking, etc. Clause (7) while confirming that the assessee, their employees and guest will have the right to use the common areas, acknowledged the right of Vaitalik as lessor to restrict the entry of undesirable persons into the building. Clause (8) assured that in consideration of the rent the assessee shall peacefully enjoy the demised premises during the lease without interruption from Vaitalik. Clause (9) prohibited the assessee from making ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its own cost. 10. By an agreement dt. 24th July, 1996, Vaitalik and the assessee agreed that the lease shall be renewable for a further, term of five years each on expiry of the current term of five years and any further, term of five years and that a fresh lease deed shall be executed at the time of each renewal. 11. The last of the important documents was entered into31st March, 1999which has also been referred to by the CIT in his order at p. 5. This agreement, again between Vaitalik and the assessee, terminated the lease agreement w.e.f.1st April, 1999i.e., even before the first term of lease was to expire on31st July, 2000. This agreement further, provided that the assessee will discharge the lease money and other obligations towards Vaitalik and Vaitalik will discharge the building cost obligation to the assessee and the respective obligations shall be fulfilled within six months from 31st March, 1999. This agreement was described as a deed of cancellation. The CIT has relied on the cancellation agreement to hold that it clarifies that the rights and obligations binding the assessee and Vaitalik were purely contractual in nature without conferring any rights of ownership ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on expenses, the assessee still enjoyed a profit and, thus, it seems to have been adequately compensated for the outlay of its funds. This in crux was the arrangement that was documented between Vaitalik and the assessee and put to effect. The form the arrangement took was not so explicit and required some unravelling but that is no reason to refuse to look into the real intention of the parties. 13. Having said that, I shall now briefly examine the documentation. As already noted, the contract for construction services dt.27th July, 1994referred to the background of facts which forced Vaitalik to approach the assessee. The preamble itself is quite articulate and shows the anxiety of Vaitalik to gather funds for the construction. The nomenclature given to the contract, namely, "contract for construction services" is certainly not conclusive as rightly pointed out on behalf of the assessee but at the same time it gives an insight into what the parties really intended by entering into the document. The nomenclature cannot be ignored altogether. Clause (1), apart from narrating that the assessee was to incur the expenditure on the construction of the building also says that the poss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for one term at the option of the assessee and further renewals shall be with the mutual consent. There was no question of leasing out the area to the assessee if the assessee was the owner thereof. The further fact that the assessee gave an interest-free security deposit of Rs. 5 lakhs to Vaitalik, that it was specifically provided that in case the assessee let out the area to others it shall maintain the area properly by incurring capital and Revenue expenses and day-to-day expenditure, that the liability of the assessee to pay house tax and other taxes shall cease on the date on which it vacated the premises, etc., embodied in cls. (3) to (6) are also consistent with the position that the assessee was not intended to be the owner of the area of 23,883 sq. ft. The learned counsel for the assessee placed reliance on cls. (7). (8) and (l0) to submit that these clauses were consistent with the position that the assessee was not a mere lessee of the premises but was the full owner thereof. I however, find that cl. (7) merely assures the assessee that Vaitalik has paid all the dues to DDA or any other authority and if any further, dues are found payable, they shall be paid by Vaital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t any attempt by the DDA to reenter the land on the ground of violation of the conditions of the head-lease, but, admitted that it was an "awkward attempt" at that. Clause (1) reiterated the intention of the parties, that is, to lease the premises for rent; cl. (2) authorised the assessee to use the premises for its own purposes or to let out wholly or partly the same to others; cl. (3) affirmed that the lease shall be for a period of 5 years effective from 1st Aug., 1995 to 31st Aug., 2000. These three clauses leave no doubt that the intention of the parties was only to lease the premises to the assessee for a period of 5 years. The assessee was not constituted the owner thereof. The learned CIT-Departmental Representative had drawn our attention to various clauses of the lease agreement, such as cls. 5(b), 6, 7, 9, 10, 11, 14(c), 19(b) etc., to support his contention that the assessee was the lessee of the area of 23,883 sq. ft. I have already briefly noticed these clauses and I agree that they support the CIT. The learned counsel for the assessee relied on cls. 17 and 18. Clause 17 only clarified that the terrace of the building shall always remain the property of Vaitalik who c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efrom". The underlined part of the sentence is revealing. If the assessee was the legal owner of the property forming part of the area of 23,883 sq. ft. constructed by it, there was no need to derive the right to let out the same from Vaitalik; the assessee could do so in its own right. The preamble thus shows that the assessee was not the owner. 17. In the course of the arguments. I drew the attention of the learned counsel for the assessee to the lease agreement dt. 8th Jan., 1996 between the assessee and UOP Asia Ltd., for letting out a part of the area constructed by the assessee and requested him to clarify as to why in the preamble it was stated that "the lesser has erected a building" when it would have been much more appropriate to refer to the assessee as the owner of the building if that was the factual position. He submitted that the words in the preamble cannot be changed now and they have to be interpreted as they are, but, in the light of all the other documents and surrounding circumstances. He drew my attention to cl. 5(a) of the perpetual lease deed entered into between DDA and Vaitalik which prohibited Vaitalik from selling, transferring, assigning or otherwise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epartment ever treat Vaitalik as the owner of the above area. If the legal effect of the arrangement between Vaitalik and the assessee is properly understood, the position is that the assessee is not the owner of the above area. If the Department has for some reason or the other not given effect to the legal arrangement in the assessments of Vaitalik, that cannot still constitute the assessee as the owner of the area. It may at best be looked upon as a lapse on the part of the Department. The conduct of Vaitalik in not claiming the area of 23,883 sq. ft. as its own may have some bearing on the question before me but, that can never be such an overriding consideration which can change the correct legal position flowing from the entire documentation taken together. 20. It was contended for the assessee that a person can in law be the owner of a property for a limited period as in the case of a sale with an agreement to resell and in the instant case the assessee became the owner of the area of 23,883 sq. ft. for a period of 5 years or 5 years and 6 months and, therefore, the rental income should be charged to tax under s. 22. The proposition of law is unexceptionable, but, it has n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elve years, if the aggregate of the term for which such lease is to be granted and the further, term or terms for which it can be so extended is not less than twelve years; (ii) in relation to any immovable property of the nature referred to in sub-cl. (ii) of cl. (d), means the doing of anything (whether by way of admitting as a member of or by way of transfer of shares in a co-operative society or company or other AOP or by way of any agreement or arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, such property." It is common ground that sub-cl. (i) is related to an immovable property referred to in sub-cl. (i) of cl. (d) of the same section and sub-cl. (ii) is related to an immovable property of the nature referred to in sub-cls. (ii) of cl. (d) of the same section. Clause (d) of the section is as under: "(d) 'immovable property' means: (i) any land or any building or part of a building, and includes, where any land or any building or part of a building is to be transferred together with any machinery, plant, furniture, fittings or other things, such machinery, plant, furniture, fittings or other things also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the rights and obligations of the parties were purely contractual and no rights of ownership were conferred on the assessee vis-a-vis the constructed area of 23,883 sq. ft. Not only this, the other important consequence of the cancellation deed is that the lease factually expired on 3lst March, 1999 and though originally there was a provision for renewal of the lease under the agreement dt.24th July, 1996taking the aggregate terms of the lease for 12 years or more, factually there was no lease beyond31st March, 1999. Sec. 269UA(f)(i) r/w the Explanation thereto contemplates a situation where there is in existence a lease which provides for extension thereof for periods aggregating to 12 years or more and such a deed is not modified thereafter to provide for a lesser period or for cancellation. When the lease itself is terminated, all the terms of the lease also get terminated and, thereafter, the terminated lease agreement has no legs to stand and is a dead document and cannot be relied upon for the purpose of showing that it provided for an aggregate term of 12 years or more. The effect of the deed of cancellation is that there was no lease beyond 31st March, 1999 and to say th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and where the intention of the parties was never in doubt that the rental income was held assessable as property income. Where the agreement between the parties is not to sell and purchase the property but only to lease it, the ratio of the judgment cannot apply. I, therefore, hold that the judgment is of no assistance to the assessee in the present case. 23. It was then submitted by the learned counsel for the assessee that if the income is not assessable as property income under s. 22, it cannot automatically be assessed under the head "Income from other sources" and it will then be a case of application of income. The CIT has not held the income to be assessed under the head "Income from other sources". He has only directed the AO to examine the issue as to under which head of income "Business" or "Income from other sources" the rental income should be taxed. The assessee may take up all its contentions as to which of these heads is the proper head of assessment before the AO. It is not to be decided by me. 24. The last submission on behalf of the assessee was that the view taken by the AO was a possible view and, therefore, the action under s. 263 was unwarranted. The jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y income but has later reopened the assessment to hold that it was assessable as "income from other sources" but the CIT(A) has by order dt.30th Jan., 2004, allowed the appeal holding that the income was assessable as property income. An appeal to the Tribunal is stated to be pending for this year as well as for the asst. yrs. 1998-99 and 1999-2000. But, as I have already found, the assessee was clearly not the owner of the area of 23,883 sq. ft. but, was only a lessee thereof and, therefore, the rental income cannot be assessed under the head "Income from house property" under s. 22 of the Act. Ownership of the property is the sine qua non for the assessment of the income under the head "Income from house property" under s. 22. The CITs action is justified in view of the fact that the assessment order was erroneous insofar as it is prejudicial to the interest of Revenue, inasmuch as the AO assessed the rental income under the head "Income from house property" even though the assessee was not the legal owner of the property. 25. In the course of the arguments, the learned counsel has drawn my attention to several authorities compiled in paper book No. 2 as also to the judgments o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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